The LLC operating agreement outlines the ownership, management, and roles of each company member. As a result, it's highly recommended that the members of an LLC work together to create a written operating agreement after formation. An operating agreement serves as the only record of ownership in a company. LLC ownership information is not public or listed anywhere by the state. States with mandatory requirements: California, Delaware, Maine, Missouri, and New York require LLC operating agreements.
Categories of LLC Operating Agreement templates
Generally, a single-member operating agreement is a legal agreement for an LLC with only one (1) member/owner. To help solidify the LLC's status as se...
Corporate bylaws outline the operating rules and various methods by which a company will conduct business. Initial directors, typically those named in...
Multi-member operating agreements typically pertain to companies with more than one owner. This is essential as it is the only document that specifies...
An LLC operating agreement amendment changes the original terms and must be ratified by a majority of the members. A change in ownership is the most c...
Here's a list of the States where you might need a State-specific agreement:
Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Utah Texas Vermont Virginia Washington Washington D.C. West Virginia Wisconsin Wyoming
What is an LLC Operating Agreement?
As the corporate bylaws, an LLC operating agreement defines who owns the business, its management, its officers, and its operating procedure. Despite the fact that it is not a requirement in most states, financial companies will require it when opening bank accounts and receiving loans or investments. An individual's ownership interest may also be listed or verified inside an operating agreement by the IRS.
Key features of an LLC agreement
There are 5 salient features that should be in an LLC agreement for it to exhibit clarity. They include:
Membership– The LLC Operating Agreement must be amended if a new member is added to the company, which requires the approval of all existing members, along with the written consent of the new member. It also applies to a change from one member to another in ownership.
Profit Distribution – With an LLC, members are responsible for paying their own taxes on the profits they receive from the LLC which makes it convenient to disburse profit
Flexibility – You can set up the Operating Agreement for the LLC in a simple way or incorporate as many laws for your company as you want. The paperwork and timelines for an LLC are typically much lower than those for most other business structures.
Pass-through tax – The company itself isn't taxed, but members pay their split of taxes based on their income
Protection – The LLC members are not personally liable for the business’s debts or liabilities. Many people choose an LLC over other types of business formation for this reason alone.
Five steps to forming an LLC
It's quite easy to set up an LLC online, and this is the reason there are so many professional services available to help. Services like these charge you the state's fee to form an LLC, plus a fee to create it for you. While it may seem daunting at first, there are easy steps below that will help you create an LLC on your own and save some money!
1. Start by selecting your state
Use the chart above to find the right document.
In America, the majority of businesses are small, local ones, so it only makes sense to register the company in the state where the business is headquartered. There are a few select states such as Delaware, Nevada, and Wyoming that are advantageous due to favorable tax laws and business infrastructures. A Delaware LLC, for example, can keep its members secret while only publicizing the name of its Registered Agent.
Local businesses should register in the state where they are located. A business with a virtual presence, for example, can research what state suits its model best, regardless of where it is located. It's important to find a Registered Agent that resides in the same state as your business if you decide to incorporate your LLC in a different state from where you live. There are a number of professional services that offer Registered Agents for hire at a reasonable cost, so obtaining one is not a difficult task. With your state selected, let's consider a name for your LLC.
2. Decide and pick a name for your company
It's ideal to choose a business name that is original and distinctive but also refers to your industry and location.
Imagine you are setting up a Bookkeeping business in Orlando, Florida. An ideal company name would be "Orlando Bookkeeping LLC". We will search the Florida Division of Corporations' website for our desired name for our LLC, using this name as the basis for our search.
"Orlando Bookkeeping", as we can see (first on the list), was previously filed as an INC, but someone abandoned it for some unknown reason, as you can see its status as "INACT.".
INACT or inactive names are still up for grabs. Excellent news! In this case, we can go ahead and file for the name since it's inactive.
Pro Tip: The URL of your website should be the same as the name of your LLC if you are looking to create one for your business. It would look very credible to have a domain name that compliments a business name, such as OrlandoBookkeeping.com.
This domain name, however, has probably already been registered. Perhaps you would need to change your business name to match a domain name that is available. A domain name service on the internet can help you find out whether a domain is available.
3. Choosing your registered agent
If not affiliated with the LLC, a Registered Agent can be a third-party agent that handles all legal notices, such as lawsuits, on behalf of the LLC. Among single-member LLCs, some states allow the members to also serve as the registered agents, while other states require that the registered agent be a third party. Physical addresses in the State where the company is incorporated are required for the registered agent. This cannot be a P.O.Box. As part of the Articles of Organization, your state will ask for the name and address of the registered agent. In your LLC Operating Agreement, you should also include the registered agent's details.
Pro tip: You need to notify the State of any change in the registered agent's mailing address and file the appropriate paperwork. Not doing so can result in the dissolution of your business.
4. Forming an LLC (Articles of Organization)
When it comes to filing Articles of Organization for an LLC, every state has its own process. State governments offer the option to file online, which is the best and easiest option; otherwise, you must fill out the Articles of Organization by hand and mail them to your Secretary of State's office.
In order to fill out your LLC articles of organization, you will need the following information:
- The filing fee (around $40-$500 depending on your state)
- Business headquarters
- Mailing Address (can be same as principal business location)
- Registered Agent's name and address
- Email and correspondence address (Lets the State inform you of important notices, such as its Annual Report).
- Members and authorized representatives' names and addresses (Authorized Representatives are the members with authority to act on the company's behalf, such as opening a business bank account).
5. Write the LLC Operating Agreement
Now that your LLC is active, you must create an LLC Operating Agreement. Keeping an internal record of this document is the responsibility of the individual, not the government. The ONLY document identifying the ownership (%) of the company is this document. Your LLC should also include much of the same information. The following items should be in your LLC Operating Agreement:
- Members' names and signatures
- Capital Contributions and Percentages of Members
- Annual Meeting Dates
Provide a copy of the LLC Operating Agreement to each Member and store it in a secure location.
The under-listed sections are all within the LLC Operating Agreement and must be thoroughly completed. Remember this is the SOLE document showing the entire modus operandi of the business, so handle it with care.
- Name of Your LLC
- State of Jurisdiction (Choose Your State)
- Select Type ( Single-member or multi-member)
- Principal Place of Business
- Registered Agent and Office
- Member Contributions ( Distributions, Bank account operations, and Company management)
- Member Meetings
- Assignment of Interests
- Ownership of Company Property (Applies to Single-Member ONLY)
- Right of First Refusal (Multi-Member Only)
- Admission of New Members
- Withdrawal Events (Multi-Member Only) includes Dissolution and Liquidation plus Representation of members and Notices
- Amendments (indemnification- applicable to single-member and Miscellaneous